How Fintechs and Banks Improve Cash Flow Management

The go-it-alone era of the fintech revolution is over.

Today, fintech providers need banks just as much as the opposite is true. The current stage we find ourselves in is all about the collaboration between the leaders in the financial services industry and the technology-driven startups changing it.

Need proof? A Capgemini survey conducted earlier this year found fintech firms are having a hard time scaling operations. To overcome this, fintechs and financial services companies are moving away from converging on a single product and moving on to focusing on the entire customer experience.

This phenomenon is particularly evident when it comes to helping businesses manage cash flow—ground zero for collaboration between fintechs and traditional banks.

What’s the Problem With Cash Flow Anyway?

Cash flow issues are common among businesses. A recent Intuit survey found more than two in five small businesses experienced cash flow issues in the past year. Of those, 61% of respondents reported struggling with cash flow on a regular basis.

One major culprit is a lack of clarity about future sales. Many business owners are focused on day-to-day operations, giving little thought to what may come next. And that lack of a long-term vision can negatively impact cash flow.

Out-of-whack expenses are another problematic area. Without constant focus, it can be all too easy for expenses to rise. When business is booming, that might not seem like a pressing matter. During a slowdown or in the face of an unexpected cost, however, cash flow issues can race to the fore.

Remember, sales only count once the invoice is paid. If a business has customers who are slow to remit payment, that can obviously lead to cash constraints. Adding to this problem is the fact that collections is an area where business owners fall short. Many lack standard policies to deal with delayed receivables or deadbeat customers.

Finally, nothing kills sales—and, thus, cash flow—faster than pricing products and services incorrectly. Whether on the high or low end, the outcome remains the same: a decline in revenue. If your business isn’t charging enough to cover operational costs, it creates cash flow issues. If you’re pricing products and/or services too high, your customers will find a rival who will do it cheaper.

The Future of Cash Flow Protection is Now

From artificial intelligence and machine learning technology to automation and predictive analytics, there is an exciting new array of tools to help businesses gain better, more effective control over their cash flow.

For example, electronic payment systems—such Fifth Third’s Expert AP powered by AvidXchange—enable business owners to automate accounts payable and receivables. The platform, not the business owner, keeps track of when bills are due, if a customer hasn’t paid on time, and the preferred payment method of the vendor.

On the cash flow management front—thanks to collaborations between fintechs and banks—business owners now have access to a bevy of proactive tools to prevent issues from emerging in the first place. This includes data analytics to assess current cash flow and forecast future sales as well as the ability to track cash on a daily, weekly or monthly basis. These platforms even empower business owners to borrow against invoices that haven't been paid yet.

Payment fraud and cybersecurity hacks can cost a business more than money—and often harm to the hard-won reputation is at stake as well. If a company is dealing with a large number of chargebacks, that negatively impacts the amount of cash on hand. If a business is hacked, it shakes customer confidence, potentially discouraging sales. Fintechs and banks are working together to combat that with digital tools designed to detect payment fraud and keep businesses safe from cyberattacks.

The Outcome, So Far

The collaboration between fintech providers and banks is a win-win: Processing payments manually costs two-and-a-half times more per transaction than with an automated system such as Expert AP. Increasing the speed of invoicing and payments not only reduces cash flow issues, but can also improve and deepen relationships with important vendors. And when low-level tasks are automated, business owners and employees can use those freed-up hours and resources to focus on what really matters: Running and growing the enterprise.